Tuesday, January 28, 2014

Can we build our way to affordable housing?

The price of housing and the dramatic increase in evictions have once again propelled housing affordability into the forefront of debate in San Francisco. The usual suspects make the usual arguments: if we only unleash the power of the market by removing “regulations” (rent control, height limits, density requirements, traffic analysis, take your pick) from our over-regulated housing market, we could have affordable housing thanks to the immutable “law” of supply and demand.

The graph above shows that in 41 of the last 65 quarters housing production increased in San Francisco and that with that increase in supply THERE WAS AN INCREASE IN PRICE, standing the normal “supply and demand” assumption on its head in San Francisco.

This graph is not an isolated “data point.” In fact, between 1960 and 2010 San Francisco has built nearly one and a half housing units for each new resident: our population increased by 64,000 during that period, yet we have built some 92,000 homes and condos. No major housing development has ever been turned down in San Francisco during that period. Over the last decade alone, San Francisco has exceeded its market rate housing production goal of some 11,000 units by over 50%, building some 16,500 market rate units from 2000 to 2010....

In order to stand the supply-and-demand assumption on its head one must demonstrate some facts about demand, not just supply. This article does no such thing.

The increase in San Francisco's resident population is not equivalent to the increase in demand for housing. In all likelihood demand exceeds the increase in supply and that is why the price of housing continues to increase.

Now, if prices were increasing while vacancy rates were also increasing THAT would indeed propose a conundrum to market theory.